Survivorship bias seems to play a huge role in VC too. A handful of individuals and firms got mega-rich with Facebook and then later with Uber, and now they are held up as these huge geniuses. However, this is more luck than skill, because all oof their later investments have done much worse, so excluding Facebook and Uber, they are not so skilled. Now these same geniuses are hyping crypto , which has been a total disaster for half of 2021 and all 2022. Same for Softbank, which had a big winner with Ali Baba, but pretty much failed massively with later bets. Successes have many mothers, failure is an orphan, as it's said.
This. I always get annoyed when entrepreneurs eg. on Shark Tank say things like “I quit my job, took out two mortgages on my home, maxed out my credit cards and spent my kids’ college fund on the business. And look at us now, we’re making millions of dollars a year! Don’t give up when failure looks inevitable!”
Probably most of the people who follow this advice to the letter end up financially ruined, they just don’t get a public platform to talk about it…
Quite. I think Shark Tank is what we call Dragon's Den in the UK (bunch of civilians pitch to zillionares for cash and mentoring in return for a stake in the business - all on TV).
You see some absolute horrors that inevitably will lead to bankruptcy. However you also see some clever folk getting a well deserved leg up.
But I think we agree that for everyone that seems to effortlessly do the American Dream thing, there are 1000s or 100,000s that don't. Then there's the likes of me that have run a rather boring small business for 22 years turning over around £1.2M pa but not exactly setting the world on fire! I can sleep at night and have nearly no debt, so that's nice.
I just want to point out that you’re living the American Dream. I think you may misunderstand the term as it’s generally used.
The phrase isn’t about becoming a billionaire. It’s rooted in the American frontier period, inspired by Protestant values, and is much more aligned with living a happy upper-middle-class life: owning land, a home, enough resources to have a family, and having meaningful or productive work.
I wouldn't even say upper-middle-class. Descended from Irish orphans, jewish refugees, Pennsylvania Dutch coal miners (so the classic Amish Jewish Redhead, without red hair). A relatively safe work environment, owning a home, feeding their family, not having your government try to exterminate you. That was their American dream. You know, the little things.
The American dream was historically a question of upward social mobility both for you from your parents and your children from you. It’s very much a question of economic, social, and political gain. It stood in stark contrast to countries people immigrated from with extremely limited mobility across generations.
In that context it’s clear America is failing due to shrinking social mobility.
The noteworthy part is that the American dream for these people meant mobility from serfdom and abject poverty to a lifestyle that would now be considered abysmal.
For an Irish immigrant it wasn't about becoming a billionaire, it was about making sure your children have enough food to survive a winter.
Social mobility from nothing to basic necessities is still quite high in the US. Maybe not home ownership, but there are a lot of clear paths to be able to feed a family.
Defending the decline in living conditions by comparing it to standards from a developing economy is a bad justification. The problem isn't that the US isn't generating wealth, its that its poorly distributed.
The US is full of poor people but the country has never been poor. It's an amazingly wealthy place.
That’s only a small part of the story, middle income and even wealthy people also immigrated to America seeking the American dream of upwards social mobility. Even a surprising number of aristocrats immigrated to America seeking their fortune.
I agree they are not the only story, but I think a majority of people would fall under that umbrella. Middle class in 1800s looked a lot different than today.
Fair point, though serfdom largely ended much sooner than mass immigration to America and abject poverty by the standards of the time wasn’t that common.
EX: “In England, the end of serfdom began with the Peasants' Revolt in 1381. It had largely died out in England by 1500 as a personal status and was fully ended when Elizabeth I freed the last remaining serfs in 1574.[6] Land held by serf tenure (unless enfranchised) continued to be held by what was thenceforth known as a copyhold tenancy, which was not completely abolished until 1925 (although it was whittled away during the 19th and early 20th centuries). There were Scottish born serfs until the Colliers and Salters (Scotland) Act 1775 prevented the creation of the status, and 1799, when coal miners who had already been kept in serfdom prior to the 1775 Act gained emancipation.[7] However, most Scottish serfs had already been freed.“ https://en.wikipedia.org/wiki/History_of_serfdom#Great_Brita...
> and is much more aligned with living a happy upper-middle-class life
As and ethos I think more accurately it has never been about a particular description of "good life", but more about the freedom and opportunity to try and make a better one for you and your family, however you define that.
Maybe it's just me getting older, but running a successful small business that pays the bills and supports my family into retirement is what I would consider the paradigm of success for my life. Congrats on your business.
Moreover, just with the sheer count of VCs, stock investors and other sorts that play with their (or more often other people's) money to try and earn outsized profits, it is inevitable that a small sliver of them will be wildly successful. It's a statistical certainty. It's like having a million people toss coins all day and then hail as geniuses those who got twenty heads in a row.
There is an excellent book by Nassim Taleb that expands on this theme titled "Fooled By Randomness".
Successful people toss coins in games where the odds are in their favor. Saying if they win it's just luck is pedantically true, but if you keep playing those kind of games you'll win. Keep playing the lottery, and you will lose.
Successful people I know don't buy lottery tickets.
> Successful people I know don't buy lottery tickets.
Are we talking about typical "work hard, relatively successful people in middle class" or "extremely rich people" here? Because the latter, I can guarantee, is typically due to pure luck, despite all what we want to believe.
Gates, Bezos, Jobs, Musk, etc.? They were sitting at home, chillin' with a beer, and rubbed the bottle they bought from the thrift store, and Shazzam! 3 wishes each!
> Gates, Bezos, Jobs, Musk, etc.? They were sitting at home, chillin' with a beer, and rubbed the bottle they bought from the thrift store, and Shazzam! 3 wishes each!
If you read a little bit about what happened in each of their cases, they were at the right place at the right time (and with access to computing resources that most people did not have) usually before anyone else could be. That's what "luck" is all about. You couldn't have become Bill Gates 5 years after he was around. That does not mean that none of them had great skills or great ideas, but that's just not enough to become massively successful.
While generational shifts are a pre-condition to becoming _that_ wealthy, they're not enough. Plenty of people were alive then (and had the resources required to bet big), but there's only a handful of Gates and Bezos. To make it that big you need to:
1. be at a point in history where you can bet big
2. have the resources to do so
3. be right
4. put in the work
All are required. I feel like supporters overemphasise 3. & 4. and detractors hammer on 1. & 2.
Now, the good news is you don't need to reach tech-billionaire levels of worth - and virtually everyone here won't. If you're happy with an orders of magnitude lower net worth (which is still in the 99th percentile), there are other ways to get that which don't require 1. You still need 2,3 and 4. That's good news because there aren't many opportunities for 1. (off the top of my head, trends that _look_ like they'd fit the bill currently are crypto, VR, space stuff, fusion energy, ESG, human longevity)
5 years from now, you will rue today as you didn't see the opportunity in front of your face. Someone is in a garage right now becoming the next billionaire that you (and me) muffed.
Oh, but I have read about them. What they did was recognize the opportunity in front of them, that everyone else did not see.
Nobody remembers Lotus, which for many years was a much bigger company than Microsoft. Lotus eventually failed because of some terrible business decisions, not bad luck.
They also all worked their asses off.
Tim Patterson was another who was in the right place at the right time. Nobody remembers him. He wrote the original PC-DOS. He didn't know what he had, and sold it to Microsoft for a song.
Gary Kildall was in the right place at the right time. He blew it.
I was in the right place at the right time, several times. I blew it big time, because I did not recognize the opportunity. So have many others I personally know.
Want to look at Jobs again? He had not one, but three incredible success stories. The first Apple Co., Pixar, and the Apple we know today. With Pixar and Apple, he turned both companies from inevitable bankruptcy into incredible success.
Just want to chime in and say: samesies. I wish I could say more, but eh. Some of us were ready, willing, and able, and some circumstance or opportunity was unrecognized or ignored or not taken far enough. Probably a lot of us. But I also want to say that we cannot be reasonably bitter about this. Chin up, fella. We have witnessed miracles and wonders.
Under certain circumstances, playing a lottery is a completely rational idea. Even if mathematical expectation of a win is negative, taking into account utility function can turn it positive. After all, mathematical expectation of buying insurance is negative too, but we don't talk down on those who buy insurance.
I don't buy collision insurance on my car. Haven't for 40 years, because my car was totaled 40 years ago and the insurance payout was so meager I realized that self-insurance was a far better deal.
Buying insurance on appliances and other devices is a waste of money, too.
You are a fool if you believe you have much more chance than winning the lottery. You can play the lottery all your life and never win anything, and that's a hell of a lot more likely than gaining anything from it.
It could be evidence that the idea of VCs may not be a reliable way of investing.
Nassim Taleb stated that in 2009, within an 18 month window, banking industry lost all the profits it ever made since the beginning of banking as an industry.
Such a catastrophic event isn't out of the question for VC either.
> Such a catastrophic event isn't out of the question for VC either.
It is out of the question with the current legal system. Because of limited liability for this to be true they would have to have invested more than the total profits. The individual investments could lose a lot of money but the VC loss is capped at their original investment.
Tautologically. There isn't a facebook in any failing VC fund. So it's really unnecessary to talk about VC strategies at all if you're going to define a successful strategy as having once invested in some whale early and ignore all of the other failures, it's sufficient to just ask for a list of the investors in things that did well and declare them shrewd.
Not rally, if you take the reality of it a big further i.e. 'there is an FB in every vintage' or more like 'there are a 'few big hits' in every vintage' - you'll find that the pattern is repeated over and over by good VC's who can demonstrate their consistency.
But why is it that some VC are clearly better at this dice rolling? ex. Sequoia
Again and again they seem to be able to discover these home runs or is it that they are able to use their vast network of influence to manufacture success?
It all reminds me of poker. High stacks dictate/influence/restricts other participants with less stacks.
100% spot on. It's like Jim Cramer and Mad Money. His stock picks are terrible compared to the index/average, yet he somehow has a following (and a show)
